In this new weekly series, investment reporter Elliot Gulliver-Needham sits down with a fund manager for a Q&A. This week, we’re hearing from Adnan El-Araby, co-manager of the Barings Emerging EMEA Opportunities fund
How does your fund stand out from others in the same market?
We are one of the longest tenured teams covering emerging EMEA which is one of the more diverse emerging market regions that spans across three diverse and distinct sub-regions in the Middle East, Central & Eastern Europe, and finally Africa.
Co-manager Matthias Siller and I have worked together for over fifteen years researching and investing in growing companies that not only have a structural and/or unique competitive advantage, but are also well managed.
A strong management team should not only have a strong track record in executing and capitalising on a company’s growth potential, but can also articulate the company’s long term growth strategy and potential risks facing each company.
Our experience with the practical realities of investing in each of the sub-regions in terms of culture, liquidity, and politics is boosted by our ability to identify strong management teams.
We have travelled extensively across the entire region and have always believed in the value of regular investee visits, and we conduct hundreds of company meetings each year.
Which of your holdings are you most excited about?
Turkey is placing itself on a path back into the universe of investable emerging market countries. The economic team that’s being led by Turkey’s finance minister, Mehmet Simsek, and backed by a strong team of technocrats at the central bank, have pivoted the country’s economic mindset back towards an orthodox monetary policy that aims to bring down inflation through higher rates whilst pushing for a prudent fiscal policy.
Turkey’s unique geographical location allows it to straddle the Middle East and Europe giving a unique economic reach and a geopolitical advantage. Turkey boasts a large population of over 80 million, of which about 40 per cent are under age 25, that’s well educated and has one of the highest productivity rates across the region.
The financial sector, specifically the privately owned banks such as AKbank, will be best positioned to benefit from an orthodox economy that’s operating at lower inflation rates and is once again attractive to international investors.
Kazakhstan, which is often overlooked by most investors, also offers plenty of opportunity in the fintech and e-commerce space.
One of the greatest contributions of technology to modern day society is convenience, and Kazakhstan is a great example. From bill payments, shopping, passport renewals, to traditional banking, technology touches most facets of the population’s daily life.
Payments, fintech, and ecommerce services are offered by international players such as Alibaba and Visa, but domestic players such as KASPI have also managed to succeed in all three verticals.
As a team, we are also excited about the UAE government’s commitment to capitalise on its resources base domestically and from a global perspective.
The Abu Dhabi National Oil Company has created several public companies that exploit the operational advantages whilst reducing the operational impact on the company that’s created from the cyclical nature of the resource market.
ADNOC Drilling is an example of a company where the contract with the national oil company puts greater focus on delivery operational excellence and flattens the cyclical nature of the drilling industry.
What is the biggest mistake you’ve ever made in the fund?
The structural opportunity in Saudi Arabia’s private healthcare sector is a very compelling structural story that underpinned by healthy supply/demand dynamics.
We overlooked the potential growth of private hospital operators such as HMG because of the steep valuation.
What’s one change you made in the fund recently? Why didn’t you make it sooner?
We consistently added to our exposure in Turkey predominately through the private banks, but also well managed companies in the consumer space.
We will continue to monitor the efforts of Turkey’s economic team, Ministry of Finance and Central bank, in their fight against inflation and their ability to balance the country’s economic growth.
What’s the biggest change in the industry you’ve seen since you began your career?
Pre-pandemic, Asia and predominately China offered impressive GDP growth with benign domestic and geopolitical risks which allowed China and Asia to represent almost two-thirds of the Global Emerging Market index.
China’s GDP growth has been trending below average post pandemic, while the elevated political risk premium has forced investors to reallocate to other emerging markets such as India.
Meanwhile, Saudi Arabia and the GCC public markets, where the number of public companies continue to grow, have seen their weight within the Global Emerging Market benchmark grow.